As per the legislative perspective and structures, the regulations regarding tax on forex trading in Pakistan have not yet been clarified. However, there are certain regulations in terms of documentation for forex trading in Pakistan in terms of record acquisition of accumulated profit gain via international accounts. As per the regulation mentioned by the Federal Bureau of Revenue (FBR) in terms of forex taxation, any tax filer in Pakistan is obligated to pay a tax. In addition to that, the same taxpayer is entitled to open and operate a forex account with the Pakistani local forex broker. Still, the condition is to sustain and maintain the capital gains tax rates as per the standard criteria mentioned by the Federal Bureau of Revenue (FBR) in Pakistan.

As per the nature of the forex market, it can be clearly stated that the forex market is considered as one of the volatile markets where the profit and loss can be incurred within a second. Although the major goal of the trader is to win the trades in terms of profit, the element of loss can never be denied within the volatile forex market. Therefore, a trader has to keep a record of net profit on monthly basis, so that the taxes for incurred losses may be adjusted. The Capital Gains Tax on stocks traders in Pakistan is adjusted for incurred losses over the period of three years.

Is forex trading taxable in Pakistan?

As per the current legislation and the standard rules and regulations in the Pakistan’s forex trading market, there is no tax on the profit generated from forex trading in Pakistan. Yet, in addition to that, in the case of a tax filer, Pakistani residents are liable to pay up to 15% of tax in terms of forex profit as per the criteria and standard rules and regulations mentioned by the Federal Bureau of Revenue (FBR) a Pakistan.

Non-filers do not need to pay any tax on profits generated from Forex. However, if profits are processed by an international broker and a trader redeems profit in the form of a foreign remittance, then the taxes are exempted for a trader. However, locally processed withdrawal can be subject to income tax and withholding tax.

Taxes on forex CFD

According to the nature of CFD in the forex market, this can be taken as a revenue account and not the capital account in the market. Hence the tax on forex trading in Pakistan in terms of profit upon CFD can be charged as normal income tax and cannot be added into capital gain tax (CGT). In case of loss incurred upon CFD in trading, it can be deducted while calculating the income tax or can be adjusted into other incomes apart from CFD trading.

Taxes on other Assets

Fees and taxation upon trading other assets (Forex binary options) are considered among the vital trading elements. Yet, the percentage amount in terms of fees and taxation in Forex binary options trading is minimum which can never deliver any specific inverse impact upon the account while trading. So the trader can recover these fees and taxation from the account in trading on binary forex options from the winning trades.

As per the global standard criteria in terms of taxes on Forex Binary options, the percentage is 25 % of total Forex binary options trading profit. Apart from that, it is also compulsory to maintain the income tax record if the person generates above 600 USD from Forex Binary options trading within a single year. However, FBR does not impose any taxes on binary options trading or the profits earned from binary trading.

The taxation authority of Pakistan is very clear on imposing taxes on stocks trading. They deduct 15% tax on every profit earned by a trader. The same 15% is imposed on dividends as well. However, if someone is non-filer, the imposed tax will be at 30%. PSX and the broker may also charge a nominal fee per transaction.

All around the world, there are different rules and regulations in terms of fees and taxation by the different brokers. Among the major examples is that the income tax in one country on the Forex Binary options trading can be taken as a capital gain on Forex binary options in another country. The spectrum of taxation varies from broker to broker and from country to country, as mentioned above. The brokers mention under disclaimer before they allow traders to start trading.

Are forex brokers withholding agents?

According to the set standard rules and regulations and mentioned criteria by the Federal Bureau of Revenue (FBR) Pakistan, any forex broker in Pakistan can be taken as a withholding agent if the annual turnover of the forex business of a broker is 100 million PKR or above.

In recent years, back in the year 2019, the second phase amendments were delivered by the tax regulatory authorities of Pakistan in terms of taxation legislation in income tax ordinance 2001 by the government of Pakistan.

According to the standard definition of withholding agent under section 153 of the tax ordinance Pakistan, an individual having the minimum turnover of 50 million PKR to 100 million PKR per annum can be considered a withholding agent. Hence, under the same definition, any broker in Pakistan can be considered the withholding agent with a minimum turnover of 50 million PKR to 100 Million PKR for Forex trading, indices, stock, CFDs, bonds, and binary options.

However, international forex brokers cannot act as withholding agents. The reason is that there is no regulatory body in the country that regulates the foreign forex brokers. On the other hand brokers registered by PMEX may act as withholding agents. They can deduct the taxes and transmit to the government from the traders. However, trading in PMEX is exempted from the taxes until now.

How to pay the taxes correctly?

All around the world, taxation imposed on Forex profit can be calculated within the same ratio as per the regulatory authority in the region. In Pakistan Federal Bureau of Revenue (FBR), Pakistan is the authorized entity to collect taxes throughout Pakistan’s entire commercial sector, including the forex market. The traders and brokers are obligated to pay taxes to the Federal Bureau of Revenue FBR Pakistan as per the standard criteria, rules, and regulations mentioned by the same institution mentioned.

You are liable to pay taxes on your profits earned from Forex trading if:

• Your monthly profit on average is above Rs.50,000.
• You are a tax filer and receive profits in your bank account directly.
• You trade with a locally registered broker and use your banking channels for deposit and withdrawal.

You have to keep a record of your monthly net profit and show the statement while filing taxes to FBR annually. The FBR has different slabs of taxes depending on the earned profit. The lowest slab is 15% while the highest slab is 35%.

Bottom line

According to the discussion mentioned above, it can be clearly stated that the Forex trading in Pakistan has no clear regulations and regulatory authorities, so it needs to deliver more attention by the relevant stakeholders to maintain the global standard and clear regulations on forex trading in Pakistan and taxes on forex trading in Pakistan yet, there are some certain criteria and standards mentioned by the Federal Bureau Revenue (FBR) of Pakistan about the taxation structure of Forex trading specifically. According to the legislative prospectus of the Law of Pakistan, both the traders and brokers are eligible and entitled to continue the forex operations in Pakistan. Still, the taxation structure can never be denied at all within the same spectrum.